Cuts to Programs and Personnel Put Added Stress on States and School Districts Struggling to Cope With Mandates to Improve Their Education Systems

Officially, the Great Recession—the economic free-fall that shredded state and local budgets as the century’s first decade neared its close—ended about 18 months ago. The picture in the nation’s schools tells a very different story.

States and school districts have seen their tax bases wither over the past two years, and the financial picture looks bleak for years to come. At least 46 states, plus the District of Columbia, struggled to close budget shortfalls heading into fiscal 2011, according to the Center on Budget and Policy Priorities, a research organization in Washington.

And while political leaders traditionally are loath to cut education programs, even during tough economic times, the downturn’s severity has forced state and local officials to make deeper reductions in jobs, programs, and services than they would have contemplated only a few years ago. For example:

• Washington state officials suspended programs to reduce class size and provide professional development for teachers, saving $78.5 million and $15.6 million, respectively.

• Missouri cut its K-12 transportation funding roughly in half, a move that many school administrators expect to lead to longer bus rides and fewer routes.

• A number of rural Nevada districts have moved to four-day school weeks, in an effort to save on transportation, personnel, and other costs.

• Virginia cut $341 million in state funding in fiscal 2010 for school support-staff members, from janitors to psychologists.

The pain of such cuts hits home at the schoolhouse level. Take, for example, the Richland School District Two in Columbia, S.C., a 25,000-student system that was forced to cut 45 jobs—including 20 teaching positions—this school year.

“It’s heart-rending,” says Bob Davis, the chief financial officer, who has more than 30 years’ experience as a public and private budget official. The educators who were laid off “loved their jobs, and they’re not coming back. ... That’s tough. These are the most trying fiscal times I’ve seen in my lifetime.”

Even as the Obama administration has sought to stave off K-12 cuts with emergency aid, U.S. Secretary of Education Arne Duncan has acknowledged that poor economic times are likely to become the “new normal” for states and schools over the next few years.

From a policy standpoint, the fiscal crisis cuts a number of ways, with the potential to short-circuit education reforms as states and districts struggle with the fiscal emergency, while ramping up pressure for innovations that may save costs down the road.

The challenge for state and district leaders over the next years will be to make choices that address the urgent budgetary concerns facing schools, while meeting long-term academic and financial priorities, says Karen Hawley Miles, the president and executive director of Education Resource Strategies. Her Watertown, Mass.-based organization analyzes district budgets, including money spent on academic courses and staffing, to examine the extent to which that spending is aligned with school-improvement goals.

“We don’t believe that the conversation is about what to cut,” says Miles, an advisory-panel member for Quality Counts 2011. “The conversation is, ‘What is it that we want to do? What are our most important priorities? And then, how do we organize resources to do that in the best way?’”

Additional Room to Maneuver

In addition to cutting budgets and making other changes to spending, many states have enacted policy changes to provide school systems with greater flexibility to meet the challenges posed by the economic crisis. Twenty-one states broadened the eligible uses of education funds originally intended for a particular purpose, while 11 loosened class-size requirements. In all, 29 states have provided some form of policy flexibility since the recession began.

SOURCE: EPE Research Center, 2011

Federal Intervention

The financial duress would almost certainly have been much worse had it not been for an unprecedented infusion of emergency federal aid over the past two years, most notably some $100 billion in education funding through the American Recovery and Reinvestment Act, the $787 billion economic-stimulus package passed by Congress in 2009 at the urging of President Barack Obama.

That money included the $4.35 billion Race to the Top program, which provided competitive grants that encouraged bold policy changes to improve student achievement. The law prompted several states to overhaul their polices in such areas as teacher merit pay and evaluation, data use, and charter schools, and led dozens of states to join together in the push for common academic assessments.

But the stimulus money was all obligated as of last September, and the vast majority of it must be spent by the fall of this year—a deadline that leads to what many observers warn is a “funding cliff.” States and districts, they say, will face the choice of making up for the loss of aid on their own, through tax hikes, or absorbing deep budget cuts.

Many states, in fact, have sought to fend off K-12 cuts by raising taxes and tapping rainy-day funds over the past few years. Congress gave states additional help last summer, through the approval of a $10 billion Education Jobs Fund, which the Obama administration said would help preserve up to 160,000 jobs in that sector.

Yet all the federal money hasn’t made up for the severe loss in state revenue, as existing tax bases have contracted. At least 34 states and the District of Columbia have cut funding to K-12 or early education since 2008, according to the Center on Budget and Policy Priorities, which examines the effects of state and federal fiscal policy on low- and moderate-income households.

And even as the nation’s economy recovers, the financial rebound is likely to come more slowly to school districts, given that education systems typically lag behind other sectors in recovering from financial shocks, several analysts say.

“All of the stimulus dollars just kind of delay the inevitable,” says John D. Musso, the executive director of the Association of School Business Officials International, in Reston, Va. Even before that federal money arrived, he recalls, “we were telling people, ‘You really need a Plan B,’ because worse was yet to come.”

Economic Snapshots

—Brian Widdis for Education Week

Slideshows and accompanying statistics from seven states offer a visual glimpse of the nation's economic pulse. View these snapshots.

Chronic Fiscal Pain

During tough economic times, policymakers tend to “start on the periphery,” looking to trim school programs and services outside the classroom, says Noelle Ellerson, the assistant director of policy analysis and advocacy for the American Association of School Administrators, in Arlington, Va.

For example, states and districts cut travel and delay equipment upgrades. They also target extracurricular activities and art and music programs, as well as after-school and summer-school programs, says Michael Griffith, a senior policy analyst at the Education Commission of the States, a research and policy organization in Denver.

Only then, the analysts say, do policymakers move into cuts that could force changes to programs in core subjects, such as reading and math, and affect classroom instruction, such as increases in class size.

South Carolina’s Richland School District Two illustrates the difficult choices facing school systems operating in the shadow of the deep economic downturn.

The school system, with an annual general fund budget of about $190 million, has absorbed major losses in state and local tax revenues, leaving it with $3.5 million less to operate on in fiscal 2011 than the previous year. Those losses come as the district is dealing with enrollment growth that normally would have required it to add 38 teaching positions just to keep up, says Bob Davis, the chief financial officer.

Instead, Richland School District Two has cut 45 jobs, including 20 teaching positions. It has imposed furloughs on teachers and administrators for a savings of $812,000, and is cutting bonuses it once provided to employees for perfect attendance and unused sick leave, as well as some life-insurance benefits and professional development. Other hard decisions await: Next fiscal year, the district will have to do without the $4.6 million in federal stimulus aid it received this year, notes Davis.

Across the country, state and local education officials know they will probably have to withstand years of lean budgets.

Recessions typically have a long “tail” that affects school budgets well after other sectors of the economy have recovered. Roughly 48 percent of K-12 schools’ revenue comes from state sources, though a substantial amount, nearly 44 percent, comes from local sources, while about 8 percent comes from the federal government, according to pre-recession federal estimates. One reason for that lag is school districts’ dependence on property taxes and the time it takes for property assessments to reflect changes in market value, says Donald J. Boyd, a senior fellow at the Nelson A. Rockefeller Institute of Government, at the University at Albany, State University of New York.

State budgets, another key source of school funding, also tend to reflect an economic recovery more slowly than the private sector does, Boyd says. The political process of getting budgets approved is complex, and the general reluctance to cut school aid (which states are now being forced to do) means that “it takes a lot of time for this pain to work its way through the system,” he says.

Federal officials sought to help states and school districts through the initial economic blow of the recession with the stimulus package, with the added thought that preserving high-quality educational services would be essential to the nation’s recovery.

The stimulus aid appears to have greatly increased the federal government’s contribution to education, for the time being. During the 2009-10 academic year, federal sources accounted for somewhere between 15 percent and 19 percent of all national education spending, up from about 9 percent during the previous decade, estimates Griffith of the ECS.

He believes states and districts are already beginning to cope with the effects of the “funding cliff,” or loss of stimulus money. That drop-off is hitting states as they face the prospect of having to go three or four years before their revenues for education recover to pre-recession levels, he and other observers say.

Separately, the impact of the one-time, $10 billion education jobs package is difficult to gauge. The 2010 legislation gave districts up to 26 months to use that aid. Some districts did so right away, while others are stowing it away for the 2011-12 year, says Ellerson of the AASA. Some school systems had already approved budgets for fiscal 2011 by the time Congress approved the jobs aid, she adds, meaning it may have been too late to have saved jobs this academic year.

But the aid made an immediate difference in some places, such as the 257,000-student Broward County, Fla., school system. The district, with the help of federal jobs money and other sources, recalled the vast majority of 555 teachers it laid off last year. The recalled educators included Anthony J. Tabacco, an elementary school music teacher.

During the final week of classes last year at Nova Eisenhower Elementary School, in Davie, Fla., Tabacco was told he wouldn’t have a job come the fall because of district budget cuts. The 32-year-old was only in his first year of teaching, so he lacked seniority.

Tabacco spent much of last summer looking for teaching work, with no luck. But in August, around the time the federal jobs bill became law, the district told him that a part-time position as a choir director had opened up. A short time later, the district found a different, full-time position at an elementary school for him.

“I couldn’t believe it. I almost cried,” Tabacco recalls. “I know how fortunate I am.” At the same time, he’s unsure what the future holds. “I don’t know if I’ll have a job next year,” he says, “but I feel better this year than I did last year.”

Security, or Bloat?

On the whole, government employment, including jobs in schools, tends to be more stable than private-sector employment during a recession, because of the nature of the services provided by schools and other public institutions, Boyd says.

From a historical standpoint, per-pupil government spending on K-12 education has generally risen steadily since the 1930s, in both constant and unadjusted dollars, federal data show.

In recent years, spending has been fueled by a number of factors, says Griffith of the ECS, including the budget impact of rising health-care costs, efforts to limit class sizes—a strategy popular among the public—and state and local efforts to comply with such laws as the federal No Child Left Behind Act, which set requirements for schools to improve student achievement.

But some observers say that school budgets have become bloated over time, and that the recent recession could actually bring benefits by compelling district leaders to re-examine how they spend money and to cut unnecessary jobs and programs.

Private-sector employers periodically have to make cuts during tough economic times, and school districts also need to make those hard choices, argues Frederick W. Hess, the director of education policy studies at the American Enterprise Institute, a Washington think tank. It’s especially important for schools to cut fat from budgets during downturns, he says, because it’s politically difficult to do so when coffers are flush.

“Nobody likes to make hard choices when times are good,” Hess says. But during recessions, states and schools “need to look inward” for cuts that make operations more efficient over time.

Hess was skeptical of the necessity of the $10 billion Education Jobs Fund, saying that it would let districts avoid making tough-but-necessary budget choices. Many claims of education job losses have been overstated, he believes, and the federal jobs measure will simply encourage policymakers to prop up spending until the money runs out in a year or two.

Others say that while the federal aid has helped, states and schools also need to examine the steady growth in spending and figure out where they can do better.

The so-called funding cliff “has been defined as, [the budget] didn’t continue to expand,” Andrés Alonso, the Baltimore school system’s chief executive officer, said at a November post-midterm-election forum organized by Education Week. “The conversation is not taking place ... in terms of operations and the linkage between operations and outcomes.”

In a November speech, Education Secretary Duncan said schools would have to rethink established ideas about budgets and operations, such as the need for students to have a certain amount of “seat time” in each class. While he said he hoped school cuts would not be aimed at classroom instruction, he also asked districts to consider “modest but smartly targeted increases in class size.”

As a parent, Duncan argued, he’d much rather have his children in a class of 26 with an excellent teacher than in a class of 22 led by a mediocre one. Some high-performing Asian countries, he pointed out, have larger average class sizes than the United States does.

Revenue Puzzle

The recession began in December of 2007, according to the National Bureau of Economic Research. As it took hold and states saw their revenue decline, they looked for new sources of revenue, which in many cases meant raising taxes.

In 2008 and 2009, 33 states made tax-policy changes that brought more money into their treasuries, according to the Center on Budget and Policy Priorities. In 20 states, those changes “significantly” increased revenue, meaning producing gains of more than 1 percent over the previous year’s total state revenues. States imposed new taxes on personal income, sales, businesses, tobacco, alcohol, motor fuels, and other areas.

It’s safe to say that many state policymakers raised taxes reluctantly, says Kim S. Rueben, a senior fellow at the Washington-based Urban Institute and an advisory-panel member for Quality Counts 2011. The prospect of having to close schools and libraries and eliminate other public programs and services prompted them to act, she says.

Yet the new money only carried states so far. States lost more revenue during the recession—$87 billion in tax receipts—than they made up through new taxes, according to the Center on Budget and Policy Priorities. And some of the states that raised taxes still face major budget woes, in part because the tax hikes they approved were only temporary.

For example, when Arizona voters approved a 1 percent sales-tax increase in May 2010, they saved the state from having to make deep cuts across its budget, including $428 million to K-12 schools, the state estimates.

That help has proved crucial, given that schools had already absorbed deep cuts the previous three years, says Janice C. Palmer, the director of governmental relations for the Arizona School Boards Association. But the sales tax will expire in 2013, and district revenue shortfalls could linger for five to seven years, Palmer estimates. She doesn’t foresee much appetite among state policymakers to push additional tax hikes, and that means school systems will have to appeal to local voters for help.

“It’s not a panacea to save education,” Palmer says of the temporary sales tax. “It’s a Band-Aid to get to a more stable place in the future.”

The most effective budget cuts reduce costs and keep them down over time, says Marguerite Roza, who is on leave from her position as a research associate professor at the Center on Reinventing Public Education, at the University of Washington, and was an advisory-panel member for Quality Counts 2011. Unfortunately, many states and districts have sought to lop off expenses through one-time fixes such as furloughs, which bring only temporary relief, as opposed to more politically difficult reductions to salaries and benefits, argues Roza.

With furloughs, “you’ve done nothing to deal with your expenditure gap in future years,” says Roza, who also is a senior economic and data advisor at the Bill and Melinda Gates Foundation. “You’ve got the same people in the system, the same salaries, and the same service.”

Some districts, faced with the prospect of having to make do with less for years to come, are taking more-systematic approaches to bringing down costs and improving the efficiency of their operations. The Council of the Great City Schools, for instance, which represents large urban districts, has devised a system that allows districts to compare their spending and operational efficiency against those of other school systems, in areas that include transportation, accounting, food services, and custodial work. ("Districts Turn Introspective in Detailed Quest for Operational Savings," this issue.)

Derailing Policy Changes

A broader question is whether the budget troubles will affect ambitious policy changes in areas such as teacher compensation that are being proposed or implemented across the country. Those pay initiatives have sought to link teachers’ compensation to their performance in raising student achievement, among other measures.

On paper, the federal stimulus package, through the Race to the Top grant competition, should encourage states and schools to rethink spending in such areas. Maryland, for example, is one of 11 states, plus the District of Columbia, to win a Race to the Top grant, and it has promised to revamp its teacher-evaluation system, though many details had yet to be worked out at year’s end.

But Alonso, the Baltimore schools CEO, says there is also countervailing pressure to leave in place traditional evaluation and compensation models. Late last year, his district and its teachers agreed on a new contract that replaces many traditional salary features based on longevity with a system more heavily based on performance.

“You have the rhetoric of reform and change superimposed on an operational frame which is essentially conservative,” Alonso said at November’s postelection forum. “You have a kind of huge gravitational pull toward not disrupting what is there.”

Many existing pay-for-performance plans add extra costs because the extra money they offer effective teachers is not offset by cuts to salaries for other teachers who don’t meet the assigned standards. New compensation models also typically need to be negotiated with local teachers’ unions.

Hess of the American Enterprise Institute says most merit-pay systems have a “dysfunctional” structure in that they simply “leave all the old dollars in place and layer new dollars on top.” But he contends that lean education budgets in the coming years will give districts interested in paying teachers differently more bargaining power, since making changes to pay systems is more appealing to teachers than layoffs.

“On the whole, tight budgets are going to be good for reform,” Hess predicts. “Tough times make it possible to do the kind of negotiation that’s impossible when the sun is out.”

Over time, districts may be able to save money by using online tools and other technology in areas such as grading student work and foreign-language study, says Roza of the Center on Reinventing Public Education—but only if those systems replace existing spending. Today, school technology too often amounts to an “add-on,” which does not increase the productivity of districts, she argues.

Financially strapped districts, meanwhile, are likely to face continued pressure to raise class sizes if the economic picture does not improve, as the U.S. education secretary acknowledged. Class size is relatively easy to measure, and small class sizes are popular among the public, notes Roza, even though research suggests that focusing on teacher effectiveness has a greater impact on student achievement. Faced with tough choices during an era of budget shortfalls, she believes, policymakers would be better off focusing on attracting and retaining teachers who are capable of working with larger classes, rather than trying to reduce class sizes for all teachers.

Many parents, Roza contends, also would be inclined to support that policy shift. But to date, she says, “we haven’t given [the public] that trade-off.”

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